When you make a trendline say on the daily chart or 4h chart, and its for a long trend, price breaks below that trendline and finds support on your 61.8% fib than moves back up above the trendline again, would you treat it the same as being above the trendline again or stay away from that pair? Price is trending not ranging on both charts.
Thanks,
Jason
Jayboii… hello…
it happens all the time… thing of trend-lines as rubber bands: elastic…
This is why some people prefer using Bollinger Bands, as they are, as the word suggests, more
inclusive of the idea of price’s elasticity…
Nobody knows the future… If the break below the trend-line happened with very little volume,
and price returned above the trend-line support line shortly after, then it is likely that it was
not a break but price just testing that support line…
I agree with PipMeHappy …
I probably wouldn’t stay away just from what you’ve described, in principle, because I like to trade “second breaks” (I suspect but can’t prove that they have a higher overall chance of turning into a trend than either first breaks or third breaks, really: first breaks are often testing and followed by a retracement, and third breaks can be a sign of unreliability or that the line has moved? Just my perspective. For Bob Volman-style “box breaks” and “range breaks”, and so on, second breaks are quite often where the winning trades are. I [I]think[/I] the realistic price action authors/traders like Volman, and Al Brooks, would probably tend to agree with this observation.)
Thank you, Makes sense to make, so trendline can be treated like a elastic and price can break through and come back to where it was, what is the best way to confirm a true trendline break if you were entering on a trendline break?
Japanese candlesticks usually work out for me in gauging breakouts. If I see a long red candle closing below support, that could constitute a valid breakdown. On the other hand, a long green candle closing above resistance could signal a valid upside break. Another way to confirm a breakout is to wait for a pullback to the broken trend line and if it holds as support-turned-resistance or resistance-turned-support, then the reversal is likely to carry on.
Hello Jayboy
In such a situation this is what you can do:
Short term adjustments:
Simply consider this a potential sideway correction and draw a horizontal support at the mentioned 61.8% bottom and a horizontal resistance barrier at the latest peak (pre-correction) Now you have a switch from bull trend to flat trend. Wait for a breakout and act accordingly.
Long term adjustments:
The previous trend may have been too steep. Adjust the trend line by re-drawing it and include the new bottom. This means the angle of the trend line is now smaller. It may have been too big before the breakout. Hence the increase in price, is decelerating (weaker momentum). This does not mean it is reversing at that moment, but bulls are weaker, and bears are stronger “at that moment in time”.
This may be just a big correction or a potential reversal in the making. It does not matter what it is, what matters is how you deal with the current price behavior, measure it, and trade it.
Thank you Pipdiddy and oceanmen!
I will be trying both in the future!
Thank you!